UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission file number: 0 - 21460
NFO RESEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1327424
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO PICKWICK PLAZA, GREENWICH, CT 06830
---------------------------------------------------
(Address of principal executive offices, zip code)
(203) 629 - 8888
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
At May 1, 1996, Registrant had outstanding 10,165,153 shares of Common Stock.
<PAGE> Page 2
NFO RESEARCH, INC.
INDEX
PAGE
Part I FINANCIAL INFORMATION NUMBER
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Condensed Consolidated Statement of
Stockholders' Equity 7
Notes to Condensed Consolidated Financial Statements 8
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Part II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
Signature 13
<PAGE> Page 3
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31 DECEMBER 31
1996 1995
ASSETS (UNAUDITED)
- ------
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 4,908 $ 5,677
RECEIVABLES:
TRADE 14,824 14,155
UNBILLED 4,580 3,188
PREPAID EXPENSES AND OTHER CURRENT ASSETS 3,094 2,734
-------- --------
TOTAL CURRENT ASSETS 27,406 25,754
PROPERTY AND EQUIPMENT, NET 9,348 8,756
CUSTOMER LIST, GOODWILL AND
OTHER INTANGIBLE ASSETS 42,386 26,501
OTHER ASSETS 6,538 5,753
-------- ---------
TOTAL ASSETS $85,678 $66,764
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG-TERM DEBT $ 777 $ 643
ACCOUNTS PAYABLE 2,047 1,543
ACCRUED EXPENSES 10,156 8,700
CUSTOMER BILLINGS IN EXCESS OF REVENUES EARNED 9,340 7,019
---------- ----------
TOTAL CURRENT LIABILITIES 22,320 17,905
LONG-TERM LIABILITIES 7,054 4,838
---------- ----------
TOTAL LIABILITIES 29,374 22,743
---------- ----------
STOCKHOLDERS' EQUITY:
COMMON STOCK, PAR VALUE $.01 PER SHARE;
15,000 SHARES AUTHORIZED, 10,133 AND
9,428 (POST SPLIT) ISSUED AND OUTSTANDING
IN 1996 AND 1995, RESPECTIVELY 101 63
ADDITIONAL PAID-IN CAPITAL 37,766 27,222
RETAINED EARNINGS 19,106 17,405
ADDITIONAL MINIMUM LIABILITY (669) (669)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 56,304 44,021
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $85,678 $66,764
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE> Page 4
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED MARCH 31
1996 1995
REVENUES $ 24,106 $ 16,218
COST OF REVENUES 10,794 7,046
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 8,809 6,057
DEPRECIATION EXPENSE 390 299
AMORTIZATION EXPENSE 775 533
------- --------
OPERATING INCOME 3,338 2,283
INTEREST EXPENSE, NET 43 25
EQUITY INTEREST IN NET LOSS
OF JOINT VENTURES 130 --
------- -------
INCOME BEFORE INCOME TAXES 3,165 2,258
PROVISION FOR INCOME TAXES 1,464 973
-------- -------
NET INCOME $ 1,701 $ 1,285
======== =========
PRIMARY WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (a)
10,603 9,594
======== =========
PRIMARY EARNINGS PER WEIGHTED AVERAGE
SHARE (a) $.16 $.13
==== ====
(a)For comparability, the earnings per share and share data reflect the
three-for-two stock split effected on February 5, 1996. Fully diluted
earnings per common share has not been presented on the basis that the
difference between fully diluted and primary earnings per share is less than
$0.01 per share.
The accompanying notes are an integral part of these statements.
<PAGE> Page 5
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THREE MONTHS
ENDED MARCH 31
1996 1995
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME $1,701 $1,285
ADJUSTMENTS TO RECONCILE TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 390 299
AMORTIZATION 775 533
EQUITY INTEREST IN NET LOSS FROM JOINT VENTURES 130 ---
------ ------
SUBTOTAL 2,996 2,117
CHANGE IN ASSETS AND LIABILITIES THAT
PROVIDED (USED) CASH:
TRADE RECEIVABLES 3,528 593
UNBILLED RECEIVABLES (1,095) (175)
PREPAID EXPENSES AND OTHER
CURRENT ASSETS (268) (937)
OTHER ASSETS (14) (42)
ACCOUNTS PAYABLE, ACCRUED AND
OTHER LIABILITIES 7 (1,202)
CUSTOMER BILLINGS IN EXCESS OF REVENUES
EARNED (920) 1,094
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,234 1,448
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (411) (351)
PAYMENT FOR PLOG - NET OF CASH ACQUIRED (2,278) ----
PAYMENT FOR M/K - NET OF CASH ACQUIRED (3,417) ----
INVESTMENTS IN JOINT VENTURES (894) ----
PURCHASE OF LICENSE AGREEMENT, OTHER INTANGIBLES (37) (108)
------- ------
NET CASH USED IN INVESTING ACTIVITIES (7,037) (459)
------- ------
CASH FLOW FROM FINANCING ACTIVITIES:
NET PROCEEDS FROM ISSUANCE OF STOCK 226 125
PAYMENTS ON LONG-TERM DEBT (3,192) (170)
COSTS ASSOCIATED WITH NEW CREDIT FACILITY --- (97)
BORROWINGS ON LINE OF CREDIT 5,000 ---
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 2,034 (142)
------ -------
CHANGE IN CASH (769) 847
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 5,677 6,288
-------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $4,908 $7,135
======= ======
<PAGE> Page 6
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THREE MONTHS
ENDED MARCH 31
1996 1995
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 96 $ 56
INCOME TAXES $388 $ 551
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
The Company purchased Migliara/Kaplan Associates and Chesapeake Surveys,
Inc. for $3.6 million in cash and $7.9 million in shares of the Company's
common stock (see Note 2) effective January 3, 1996. The Company also
purchased Plog Research, Inc. for $5.0 million, one half in cash and one half
in shares of the Company's Common Stock, effective January 3, 1996. In
conjunction with these purchases, the following liabilities were assumed:
Fair value of assets acquired $ 22,148
Less: cash paid (6,056)
Less: 677,298 Company shares issued (post split) (10,356)
--------
Liabilities assumed $ 5,736
=======
The accompanying notes are an integral part of these statements.
<PAGE> Page 7
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS)
ADDITIONAL ADDITIONAL
COMMON PAID-IN RETAINED MINIMUM
SHARES STOCK CAPITAL EARNINGS LIABILITY
------ ----- ------- -------- ---------
BALANCE AT
JANUARY 1, 1996 6,285 $63 $27,222 $17,405 $ (669)
COMMON STOCK ISSUED IN
CONJUNCTION WITH THE
ACQUISITIONS 452 4 10,352
COMMON STOCK ISSUED IN
CONJUNCTION WITH THE
3 FOR 2 STOCK SPLIT 3,375 34 (34)
OTHER STOCK ISSUANCES 21 0 226
NET INCOME 1,701
------ ------ ------- ------- -------
BALANCE AT
MARCH 31, 1996 10,133 $ 101 $37,766 $19,106 $ (669)
====== ====== ======= ======= ========
The accompanying notes are an integral part of this statement.
<PAGE> Page 8
NFO RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Financial Statements:
These condensed consolidated financial statements include the operations of NFO
Research, Inc. and NFO's subsidiaries: Payment Systems, Inc. and Payment
Systems International Limited (U.K.) ("PSI"), Advanced Marketing Solutions
Corp. ("AMS"), Migliara/Kaplan Associates, Inc. ("M/K"), Chesapeake Surveys,
Inc. ("CSI"), Plog Research, Inc. ("Plog"), as well as several subsidiaries
relating to the Company's joint venture activities in Europe. All significant
intercompany amounts have been eliminated. In the opinion of the Company, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of the Company as of March 31, 1996 and
the results of its operations for the three month periods ended March 31, 1996
and March 31, 1995.
These financial statements are presented in accordance with the requirements of
Form 10-Q. Accordingly, the financial statements and related notes in the
Company's Audited Financial Statements for the fiscal year ended December 31,
1995, included in the Company's Form 10-K filed with the SEC on March 28, 1996,
should be read in conjunction with the accompanying condensed consolidated
financial statements. The information included herein may not be indicative of
the results to be expected for a full year.
Certain reclassifications have been made to the 1995 Condensed Consolidated
Financial Statements to conform with the 1996 presentation.
Note 2. Acquisitions:
On January 3, 1996, the Company acquired Migliara/Kaplan Associates, Inc. and
substantially all the net assets of Chesapeake Surveys, Inc. for approximately
$15.2 million. M/K is a full-service healthcare marketing information company
with offices in Baltimore, Maryland and Princeton, New Jersey. CSI, a sister
company of M/K, provides data collection and survey services such as focus
groups and random telephone interviews. Of the total purchase price,
approximately $11.45 million was paid at closing, approximately 31 percent in
cash and 69 percent in newly issued shares of NFO common stock. The remaining
$3.75 million is payable over the next three years subject to adjustment based
on the combined actual earnings of M/K and CSI during that period, and will be
accounted for as an adjustment to goodwill.
On January 3, 1996, the Company acquired Plog Research, Inc. Plog supplies
syndicated market research products as well as marketing and forecasting
services to the travel and tourism industries. Of the total purchase price,
approximately $5.0 million was paid at closing, 50 percent in cash, and 50
percent in newly issued shares of NFO common stock. The remaining purchase
price of approximately $1.7 million is payable over the next three years, 50
percent in cash and 50 percent in NFO stock, subject to adjustment based on
Plog's actual earnings during the period and will be acccounted for as an
adjustment to goodwill.
Both acquisitions have been accounted for as purchases and the accompanying
financial statements include the results of operations from the effective date
of the acquisitions. The purchase price allocations are based on preliminary
estimates of fair market value and are subject to revision.
<PAGE> Page 9
The following unaudited proforma summary presents the consolidated results of
operations as if the acquisitions had occurred on January 1, 1995 and do not
purport to be indicative of what would have occurred had the acquisitions been
made at that date or of the results which may occur in the future.
FOR THE THREE MONTHS
ENDED MARCH 31
---------------------
1996 1995
---- ----
REVENUES $24,106 $20,139
NET INCOME 1,701 1,469
PRIMARY EARNINGS PER SHARE $.16 $.14
Note 3. Stock Split:
On January 5, 1996 the Company's Board of Directors authorized a three for two
stock split of the Company's Common Stock that was effected on February 5,
1996, for holders of record as of January 22, 1996. The accompanying financial
statements give effect to the stock split.
<PAGE> Page 10
NFO RESEARCH, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto included in
this Quarterly Report.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
statement data for the Company, expressed as a percentage of revenues, and the
percentage change in such items compared to amounts for the prior year.
THREE MONTHS ENDED MARCH 31
---------------------------
PERCENTAGE OF PERCENTAGE
REVENUES CHANGE FROM
1996 1995 PRIOR YEAR
---- ---- ----------
REVENUES 100.0% 100.0% 48.6%
COST OF REVENUES 44.8 43.4 53.2
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 36.6 37.4 45.4
DEPRECIATION EXPENSE 1.6 1.8 30.4
AMORTIZATION EXPENSE 3.2 3.3 45.4
------ ------
OPERATING INCOME 13.8 14.1 46.2
INTEREST EXPENSE, NET 0.2 0.2 72.0
EQUITY INTEREST IN NET LOSS
OF JOINT VENTURES 0.5 0.0 --
------ ------
INCOME BEFORE INCOME TAXES 13.1 13.9 40.2
PROVISION FOR INCOME TAXES 6.0 6.0 50.5
------ ------
NET INCOME 7.1% 7.9% 32.4%
====== ======
<PAGE> Page 11
NFO RESEARCH, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATIONS
The Company's revenues for the three months ended March 31, 1996 increased 49%
to $24.1 million from $16.2 million for the same period last year. The
acquisitions of Migliara/Kaplan Associates, Chesapeake Surveys and Plog
Research, which occurred on January 3, 1996, contributed $5.0 million to the
$7.9 million increase in revenues. Revenues, not including those of the
acquired companies, increased 18%, led by strong showings in NFO's core
packaged goods and financial services business units.
Cost of revenues increased 53% to $10.8 million from $7.0 million a year ago
primarily due to the first time inclusion of M/K, CSI and Plog ($2.2 million),
overall increased business volume ($1.3 million) and a slight shift in product
mix.
Selling, general and administrative expenses increased 45% to $8.8 million from
$6.1 million last year. The principal contributing factors were the inclusion
of the new acquisitions ($1.7 million), increased staffing costs due to
increased business activity ($.4 million), expenses related to the development
of on-line interactive research ($.2 million), and inflationary increases.
As a result of the items above for the quarter ended March 31, 1996 operating
income increased 46% to $3.3 million, from $2.3 million in the previous year.
This quarter included for the first time meaningful net costs associated with
NFO's European joint venture activities ($.1 million), now operating in France,
Germany and the U.K.
The Company's effective tax rate for the quarter ended March 31, 1996 was 46%
compared to 43% for the same period last year. The increase is primarily the
result of increased non-deductible amortization of intangibles related to the
acquisitions that occurred in January 1996.
Net income for the first quarter of 1996 increased 32% to $1.7 million from
$1.3 million last year. Primary earnings per share increased 23% to $.16 from
$.13 due to higher net income in spite of a greater number of shares
outstanding, primarily as a result of the additional shares issued in
connection with the recent acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of March 31, 1996 was $5.1 million compared to $7.8 million
at December 31, 1995. The change in working capital was primarily the result
of the cash portion of the purchase price relating to acquisitions net of
borrowings ($4.1 million), investments in European Joint Ventures ($.9 million)
and the results of operations for the quarter ended March 31, 1996.
As of March 31, 1996 the Company had $2.0 million outstanding on its $50.0
million credit facility with three major U.S. banks.
<PAGE> Page 12
Capital expenditures for the quarter ended March 31, 1996 were $.4 million,
slightly higher than the prior year. Capital expenditures for 1996 are
anticipated to be approximately $3.0 million.
The Company anticipates that existing cash, together with internally generated
funds and its credit availabilities will provide the Company with the resources
that are needed to satisfy potential acquisitions and the Company's growing
working capital requirements. The timing and magnitude of future acquisitions
will be the single most important factor in determining the Company's long term
capital needs.
FORWARD LOOKING STATEMENTS
Statements in this Form 10-Q relating to matters that are not historical facts
are forward-looking statements. Such forward-looking statements are based on
the Company's current forecasts and actual results may differ materially. To
understand the risks which may affect the Company's future performance, please
refer to Part 1 of NFO's 1995 Annual Report on Form 10-K.
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
--------
11. Computations of Net Income per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K with the
Commission on January 12, 1996 to report its acquisition
of Migliara - Kaplan & Associates, Inc., Chesapeake Surveys,
Inc. and Plog Research, Inc. The Company filed a report on
Form 8-K/A on March 18, 1996 to file the financial information
relating to such Form 8-K report.
<PAGE> Page 13
NFO RESEARCH, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NFO RESEARCH, INC.
------------------
(Registrant)
Dated: May 13, 1996 /s/ Patrick G. Healy
--------------------------
Patrick G. Healy,
Executive Vice President
and Chief Financial Officer
(Authorized Officer of
Registrant and
Principal Financial Officer)
<PAGE> Page 14
NFO RESEARCH, INC.
INDEX TO EXHIBITS
SEQUENTIAL
PAGE
EXHIBITS NUMBER
11 Computations of Net Income per Common Share
27 Financial Data Schedule
NFO RESEARCH, INC.
EXHIBIT 11
COMPUTATIONS OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31
1996 1995
---- ----
PRIMARY:
WEIGHTED AVERAGE SHARES OUTSTANDING 10,098 9,321
DILUTIVE STOCK OPTIONS 449 212
OTHER COMMON SHARE EQUIVALENTS 56 61
10,603 9,594
====== ======
NET INCOME $1,701 $1,285
PRIMARY EARNINGS PER SHARE $.16 $.13
====== ======
THE EARNINGS PER SHARE AND SHARE DATA REFLECT THE THREE-FOR-TWO STOCK SPLIT
EFFECTED ON FEBRUARY 5, 1996. FULLY DILUTED EARNINGS PER COMMON SHARE HAS NOT
BEEN PRESENTED ON THE BASIS THAT THE DIFFERENCE BETWEEN FULLY DILUTED AND
PRIMARY EARNINGS PER SHARE IS LESS THAN $0.01 PER SHARE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in NFO Research, Inc.'s report on Form 10-Q for
the quarter ended March 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,908
<SECURITIES> 0
<RECEIVABLES> 19,541
<ALLOWANCES> 138
<INVENTORY> 0
<CURRENT-ASSETS> 27,406
<PP&E> 13,785
<DEPRECIATION> 4,437
<TOTAL-ASSETS> 85,678
<CURRENT-LIABILITIES> 22,320
<BONDS> 3,548
<COMMON> 101
0
0
<OTHER-SE> 56,203
<TOTAL-LIABILITY-AND-EQUITY> 85,678
<SALES> 24,106
<TOTAL-REVENUES> 24,106
<CGS> 10,794
<TOTAL-COSTS> 20,768
<OTHER-EXPENSES> 130
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 3,165
<INCOME-TAX> 1,464
<INCOME-CONTINUING> 1,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,701
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
